<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-Q

(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934.
     For the quarterly period ended September 30, 2000
                                    ------------------

                       OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________


                        Commission file number 000-31299

                                 PEOPLEPC, INC.
             (Exact name of registrant as specified in its charter)

            Delaware                                 13-4048510
  (State or other jurisdiction            (IRS Employer Identification No.)
of incorporation or organization)


100 Pine Street, Suite 1100, San Francisco, CA         94111
(Address of principal executive offices)             (Zip Code)

       Registrant's telephone number, including area code: (415) 732-4400


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes [X]  No [_]

The number of shares outstanding of the Registrant's Common Stock. $.0001 par
value, as of September 30, 2000 was 115,154,068 shares.

<PAGE>

                                 PEOPLEPC, INC.
                                    FORM 10Q
                                     INDEX


PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

          Condensed Consolidated Balance Sheets as of September 30, 2000
           (unaudited) and December 31, 1999                              [PAGE]

          Condensed Consolidated Statements of Operations for the Three
           and Nine Months Ended September 30, 2000 and 1999 (unaudited)  [PAGE]

          Condensed Consolidated Statements of Cash Flows for the Nine
           Months Ended September 30, 2000 and 1999 (unaudited)           [PAGE]

          Notes to the Condensed Consolidated Financial Statements
           (unaudited)                                                    [PAGE]

Item 2.   Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                      [PAGE]

Item 3.   Qualitative and Quantitative Disclosure about Market Risk       [PAGE]

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings                                               [PAGE]

Item 2.   Changes in Securities and Use of Proceeds                       [PAGE]

Item 4.   Submission of Matters to a Vote of Security Holders             [PAGE]

Item 5.   Other information                                               [PAGE]

Item 6.   Exhibits and Reports on Form 8-K                                [PAGE]

<PAGE>

                                 PEOPLEPC, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                  December 31,    September 30,
                                                                      1999            2000
                                                                  ------------    -------------
<S>                                                               <C>             <C>
                    ASSETS                                                         (Unaudited)
Current Assets:
  Cash and cash equivalents                                        $ 36,108         $ 88,182
  Restricted cash                                                    15,750           30,685
  Accounts receivable, net of allowance for doubtful
    accounts of $0 and $500 as of December 31, 1999
    and September 30, 2000, respectively                                311           58,862
  Prepaid expenses and other current assets                              66              696
                                                                   --------         --------
      Total current assets                                           52,235          178,425
Property and equipment, net                                             300            4,186
Capitalized web site development costs                                  144              146
Deposits and other assets                                               191            1,244
                                                                   --------         --------
      Total assets                                                 $ 52,870         $184,001
                                                                   ========         ========
               LIABILITIES
Current liabilities:
  Accounts payable                                                 $  9,766         $ 17,413
  Accrued and other liabilities                                      33,783           47,266
  Current portion of deferred revenues, net                           1,496           11,105
                                                                   --------         --------
      Total current liabilities                                      45,045           75,784
Other long term liabilities                                             236                0
Deferred revenues, net                                                2,825           18,067
                                                                   --------         --------
      Total liabilities                                              48,106           93,851
                                                                   --------         --------
Commitments (Note 2)

Minority interest                                                         0           49,007
Preferred stock                                                      67,939                0
                                                                   --------         --------
Stockholders' equity (deficit)                                      (63,175)          41,143
                                                                   --------         --------
      Total liabilities and stockholders' equity (deficit)         $ 52,870         $184,001
                                                                   ========         ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>

                                 PEOPLEPC, INC.
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                     (In thousands, except per share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                    Three Months Ended            Nine Months Ended
                                                                       September 30,                September 30,
                                                                   ----------------------      -----------------------
                                                                     1999          2000          1999          2000
                                                                   --------      --------      --------      ---------
<S>                                                                <C>           <C>           <C>           <C>
Membership revenues earned                                          $     0      $ 10,829      $      0      $  23,901
Other revenues                                                            0        14,464             0         20,325
                                                                    -------      --------      --------      ---------
      Total revenues                                                      0        25,293             0         44,226
Cost of membership revenues earned                                        0        26,496             0         45,485
Cost of other revenues                                                    0        13,353             0         19,223
                                                                    -------      --------      --------      ---------
Gross loss                                                                0       (14,556)            0        (20,482)

Operating expenses:
   Sales and marketing (exclusive of stock-based
     compensation of $134 and $3,157 and $134 and $10,419
     for the three and nine months ended September 30,
     1999 and 2000, respectively)                                     4,428        19,167         4,430         78,113
   General and administrative (exclusive of stock-based
     compensation of $477 and $8,754 and $502 and $21,847 for
     the three and nine months ended September 30, 1999
     and 2000, respectively)                                          1,262        20,458         1,525         43,627
Amortization of deferred stock-based compensation                       611        11,910           636         32,266
                                                                    -------      --------      --------      ---------

      Total operating expenses                                        6,301        51,535         6,591        154,006
                                                                    -------      --------      --------      ---------
Loss from operations                                                 (6,301)      (66,091)       (6,591)      (174,488)
Net interest, other income and minority share                            36         1,918            45          3,317
                                                                    -------      --------      --------      ---------
Net loss                                                            $(6,265)     $(64,173)     $ (6,546)      (171,171)
                                                                    =======      ========      ========
Dividend related to beneficial conversion feature of preferred
  stock                                                                                                        (18,209)
                                                                                                             ---------
Net loss attributable to common stockholders                                                                 $(189,380)
                                                                                                             =========

Pro forma basic and diluted net loss per share on an
  as converted basis                                                $ (0.11)     $  (0.63)     $  (0.14)     $   (2.13)
Shares used in computing pro forma basic and diluted
  net loss per share on an as converted basis                        56,682       102,509        48,275         88,936

Basic and diluted net loss per share                                $ (0.19)     $  (0.91)     $  (0.20)     $   (4.17)
Shares used in computing basic and diluted net loss per share        32,682        70,164        32,236         45,533
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>

                                 PEOPLEPC, INC.
                  CONDENSED CONSOLIDATED STATEMENT CASH FLOWS
                                 (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                           Nine Months Ended
                                                             September 30,
                                                        ---------------------
                                                          1999        2000
                                                        -------    ----------
<S>                                                     <C>        <C>
      Net cash used by operating activities             $ 2,827    $(129,488)
                                                        -------    ---------
Cash flows from investing activities:
  Restricted cash                                        (2,500)     (14,935)
  Purchase of property and equipment                       (126)      (4,102)
 Capitalized web site development costs                     (95)         (96)
                                                        -------    ---------
      Net cash used by investing activities              (2,721)     (19,133)
                                                        -------    ---------
Cash flows from financing activities:
Proceeds from issuance of Series C Preferred
  Stock, net                                                  0       49,615
Proceeds from initial public offering, net                    0       79,050
Exercise of warrants for common stock                         0       19,050
Proceeds from minority investment in PeoplePC Europe          0       50,000
Proceeds from issuance of Convertible Promissory Notes    3,000            0
Proceeds from issuance of Common Stock, net                   5        2,980
                                                        -------    ---------
      Net cash provided by financing activities           3,005      200,695
                                                        -------    ---------
Net increase in cash                                    $ 3,111    $  52,074
                                                        -------    ---------
Cash and cash equivalents, beginning of period                0       36,108
                                                        -------    ---------
Cash and cash equivalents, end of period                $ 3,111    $  88,182
                                                        =======    =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>

                                 PEOPLEPC, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

1.  Basis of Presentation

     The Company

     PeoplePC Inc. (the "Company"), provides an affordable and convenient
  membership package that includes a brand-name computer, unlimited Internet
  access, customer support and an in-home warranty. Members also have the
  opportunity to benefit from discounts and special offers from merchants who
  participate in PeoplePC's member commerce program (formerly referred to as
  buyer's club). The Company also operates the PeoplePC Online program which
  provides consumers who do not wish to purchase a computer with all of the
  other benefits of a PeoplePC membership for a monthly fee. The Company was
  incorporated in Delaware on March 2, 1999.

     The consolidated financial statements include financial statements of the
  Company's various sales and marketing subsidiaries the operations of which are
  not material in the aggregate. The balance sheet as of September 30, 2000
  reflects the effects of a $50 million investment by @viso in PeoplePC Europe.

     Unaudited Interim Results

     The accompanying unaudited interim condensed consolidated financial
  statements of PeoplePC, Inc., a Delaware corporation, for the three and nine
  months ended September 30, 2000, and September 30, 1999 reflect all
  adjustments (consisting of normal recurring accruals) which, in the opinion of
  management, are necessary for a fair presentation of the results for the
  interim periods presented. These financial statements have been prepared in
  accordance with generally accepted accounting principles of interim financial
  information and with the instructions to Form 10-Q and Article 10 of
  Regulation S-X. Accordingly, they do not include all of the information and
  footnotes required by generally accepted accounting principles for complete
  financial statements.

     These financial statements should be read in conjunction with our annual
  audited financial statements for the year ended December 31, 1999, which are
  included in our Registration Statement on Form S-1 (Reg. No. 333-34114) filed
  with the Securities and Exchange Commission in connection with our initial
  public offering.

     Operating results for the three and nine month periods ended September 30,
  2000 are not necessarily indicative of the results that may be expected for
  the full year ending December 31, 2000.

     Revenue recognition

     Revenues and the related cost of revenues for the initial membership
  package, which includes the personal computer, cost of shipping the personal
  computer system, internet access for three years, in-home warranty and
  participation in our member commerce program, are deferred and recognized over
  the three-year term of the membership agreement.

     Revenues from the PeoplePC Online program are recognized monthly.
  PeoplePC Online agreements are renewable each month and the monthly fees are
  not refundable.

     The Company also offers peripherals and upgrades at the time of the initial
  membership. As there are no future obligations with respect to the peripherals
  and upgrades, the revenue and cost of revenues related to the sale of
  peripherals and upgrades are recognized in the period shipped. These revenues
  are included under the line item "Other revenues."

     The initial membership package revenues, other revenues and the related
  cost of revenues are not recognized until the expiration of a 7-day right of
  return. The cost of providing Internet access and email services for all
  members is expensed monthly as incurred over the life of a membership
  contract.

     In some instances, and in an effort to aggressively enroll new members to
  build its brand, as well as to develop new channels of distribution, the
  Company has offered pricing of its memberships and services that was less
  than its total current and estimated future costs (primarily the cost of
  providing Internet access and email services) of performing under its
  membership agreements, resulting in an estimated gross margin loss over the
  life of the contract. As a result, the Company is required to accrue for the
  estimated loss related to this acquisition discount during the period in
  which the member enrolled. These amounts will be amortized over the life of
  the membership as an off-set to future expenses. The Company has recorded an
  acquisition discount of $19.1 million through September 30, 2000. The
  provision and related amortization is reflected in cost of membership
  revenues earned on the income statement and included with the related net
  deferred revenue on the balance sheet.

     Concentration of credit risk

     Financial instruments that potentially subject the Company to a
  concentration of credit risk consist of cash, cash equivalents and accounts
  receivable. The Company's accounts receivable are derived from revenue earned
  from customers located in the U.S. The Company performs ongoing credit
  evaluations of its customers' financial condition and generally requires no
  collateral from its customers. The Company maintains an allowance for
  doubtful accounts receivable based upon the expected collectibility of
  accounts receivable.

     At September 30, 2000, two companies accounted for 39% and 26% of total
  accounts receivable, respectively. The Company believes these amounts are
  collectible. At December 31, 1999, no entity accounted for more than 10% of
  accounts receivable.

                                      -6-
<PAGE>

     Net loss per share

     Basic net loss per share is computed by dividing net loss available to
  common stockholders by the weighted average number of vested common shares
  outstanding for the period. Diluted net loss per share is computed giving
  effect to all dilutive potential common stock, including options, warrants and
  preferred stock. Options, warrants, non-vested common stock and preferred
  stock were not included in the computation of diluted net loss per share in
  the periods reported because the effect would be antidilutive.

     Antidilutive securities not included in net loss per share calculation for
  the periods:

                                    Period from
                                   March 2, 1999
                               (Date of Inception) to        Nine Months Ended
                                  December 31, 1999         September 30, 2000
                               ----------------------       ------------------
                                                                (unaudited)

Non vested common stock.......          934,446                  6,795,383
Common stock options..........        9,189,000                 14,983,843
Warrants......................              --                   3,357,500
Convertible preferred stock...       53,816,514                        --
                                     ----------                 ----------
                                     63,939,960                 25,161,726
                                     ==========                 ==========

     Pro forma net loss per share for the period from March 2, 1999 (date of
  inception) to September 30, 1999 and the nine months ended September 30, 2000
  is computed using the weighted average number of common shares outstanding,
  including the pro forma effects of the automatic conversion of the Company's
  Series A, Series B and Series C Preferred stock into shares of the Company's
  common stock as contemplated upon the closing of the Company's initial public
  offering as if such conversion occurred at the date of original issuance. The
  resulting pro forma adjustment results in an increase in the weighted average
  shares used to compute basic and diluted net loss per share of 16,039,000 and
  43,503,000 shares for the period from March 2, 1999 (date of inception) to
  September 30, 1999 and for the nine months ended September 30, 2000. Pro forma
  common equivalent shares, composed of unvested restricted common stock and
  incremental common shares issuable upon the exercise of stock options and
  warrants, are not included in pro forma diluted net loss per share because
  they would be antidilutive.

     A reconciliation of the numerator and denominator used in the calculation
  of pro forma basic and diluted net loss per share follows:

                                         Nine Months             Nine Months
                                            Ended                   Ended
                                     September 30, 1999      September 30, 2000
                                     ------------------      ------------------
Pro forma net loss per share,
 basic and diluted:
Net loss............................    $ 6,546,000             $189,380,000
                                        ===========             ============
Shares used in computing net
 loss per share, basic and
 diluted............................     32,236,000               45,433,000

Adjustment to reflect the effect
 of the assumed conversion
 of preferred stock.................     16,039,000               43,503,000
                                        -----------             ------------
Shares used in computing pro forma
 net loss per share, basic
 and diluted........................     48,275,000               88,936,000
                                        ===========             ============
Pro forma net loss per share,
 basic and diluted..................    $      0.14             $       2.13
                                        ===========             ============

     Comprehensive loss

     Comprehensive loss, as defined, includes all changes in equity (net assets)
  during a period from non-owner sources. The Company has no comprehensive
  income components other than its net loss.


     Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
  "Accounting for Derivative Instruments and Hedging Activities," which
  establishes accounting and reporting standards for derivative instruments and
  hedging activities. SFAS No. 133 requires that an entity recognize all
  derivatives as either assets or liabilities in the statement of financial
  position and measure those instruments at fair value. The Company, to date,
  has not engaged in derivative and hedging activities. The Company is currently
  evaluating the impact of this pronouncement and will adopt SFAS No. 133 in
  2001.

     In December 1999, the Securities and Exchange Commission issued Staff
  Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
  Statements." SAB 101 summarizes the SEC's views in applying generally accepted
  accounting principles to revenue recognition in financial statements. The
  Company is in compliance with this pronouncement.

     In March 2000, the FASB issued Interpretation No. 44 "Accounting for
  certain transactions involving stock compensation, an interpretation of APB
  Opinion No. 25" ("FIN 44"). FIN 44 establishes guidance for the accounting for
  stock option grants or modifications to existing stock option awards and is
  effective for option grants made after June 30, 2000. FIN 44 also establishes
  guidance for the repricing of stock options and determining whether a grantee
  is an employee, for which the guidance is effective after December 15, 1998
  and modifying a fixed option to add a reload feature, for which the guidance
  is effective after January 12, 2000. The adoption of certain of the provisions
  of FIN 44 prior to June 30, 2000 did not have a material effect on the
  financial statements. The Company does not expect that the adoption of the
  remaining provisions will have a material effect on the financial statements.

                                      -7-
<PAGE>

2.  COMMITMENTS

     Purchase commitments

     The Company relies on Ingram Micro (the "Distributor") to provide its
  computer products, maintain inventory, process orders, prepare merchandise for
  shipment and to distribute its products to customers in a timely and accurate
  manner. The Distributor purchases inventory on behalf of the Company based on
  sales projections made by the Company. The Company takes title to the
  equipment just prior to shipment to the customer and relinquishes title to
  the customer upon completion of the transaction. The Company is obligated to
  purchase inventory held by the Distributor purchased on its behalf. At
  September 30, 2000, the Company had approximately $40 million in
  noncancelable purchase commitments with the Distributor, including certain
  computers held by the Distributor which do not conform to specifications as
  ordered by the Company. The Company has recorded a provision of $15.6
  million relating to the cost of resolving any potential dispute over such
  non-conforming computers. As of September 30, 2000, the Company is also
  obligated to purchase approximately $20 million of products from IBM. The
  Company expects to sell all products that it has committed to purchase from
  the Distributor and IBM.

     In July 2000, the Company reached an agreement with Ingram Micro to
  liquidate the non-conforming computers, following which the Company will
  split the losses associated with these computers so that it bears half of
  the loss and Ingram Micro bears half of the loss. While the amount of the
  aggregate loss following liquidation cannot be determined at this time, the
  Company believes that the $15.6 million provision will be sufficient to
  cover the Company's share of the losses.

3. COMMON STOCK

     The Company's Articles of Incorporation, as amended, authorize the Company
  to issue 500,000,000 shares of $0.0001 par value Common Stock.

     In August 2000, the Company sold 8.5 million of common shares in an initial
  public offering.  Net proceeds from the offering were $79 million.  All shares
  of preferred stock then outstanding were converted to common stock on a 1:1
  ratio.

     In January 2000, the Company entered into an agreement with Delta Air
  Lines, Inc. ("Delta") to provide its products and services to Delta employees.
  The Company also granted Delta a fully vested warrant exercisable for 0.5
  million shares of the Company's Common Stock at an exercise price per share of
  $6.225. This warrant expires six months after the closing of the initial
  public offering or three years after the effective date of the contract. The
  value of the warrant of $1.5 million is included in sales and marketing
  expenses in the three months ended March 31, 2000 (unaudited), as Delta has no
  performance requirements and the warrant is exercisable upon issuance.

     The warrant was valued using the Black-Scholes Model with the following
  assumptions: fair value of the underlying common stock $6.84; term of option:
  3 years; expected dividend rate: 0; volatility: 50%; interest rate: 7%.

     In connection with an agreement with Ford Motor Company ("Ford") to provide
  products and services to its employees, Ford also purchased 4.7 million shares
  of Series C Preferred Stock at $5.246 per share and had the right to purchase
  up to 2% (on a fully diluted basis as of the closing of the Series C Preferred
  Stock financing) of the Company's Common Stock at the initial offering price
  paid by the public in the Company's Initial Public Offering of Common Stock
  ("IPO") (the "Right"), which Ford has exercised in full. In addition, Ford
  received a warrant to purchase an additional 3% of the Company's Common
  Stock (calculated in a similar manner) at the same price. The warrant became
  exercisable upon the completion of the Company's initial public offering and
  will expire 200 days after the IPO. The value of the Right, the warrant, and
  the excess of the value of the Common Stock into which the Series C Preferred
  Stock is convertible over the price paid for the Preferred Stock was charged
  to marketing expense in the second quarter of 2000, as Ford has no performance
  requirements and the rights and the warrant are exercisable upon issuance.

     The right and the warrant were valued using the Black-Scholes Model with
  the following assumptions:


                                                      Right       Warrant
                                                   ----------   -----------
Number of shares.................................   1,905,000    2,857,500
Fair value of common stock.......................  $     9.07   $    13.00
Exercise price...................................  $    13.00   $    13.00
Term.............................................    5 months     200 days
Dividend rate....................................           0            0
Volatility.......................................          50%          50%
Interest rate....................................           7%           7%
Total value......................................  $  515,000   $6,113,000



     The excess of the value of the common stock into which the series C
  Preferred Stock is convertible over the price paid for the Preferred Stock
  ($17,944,000) was calculated using the fair value of common stock on the date
  at which the terms and conditions of the preferred stock were agreed ($9.07).

                                      -8-
<PAGE>

4.   LINE OF CREDIT

     As of July 18, 2000, the Company signed an agreement for a $50 million
  revolving credit facility with Chase Manhattan Bank. The interest rate is
  LIBOR or prime rate based at the option of the Company and dependent upon
  notice to Chase Manhattan Bank. The maturity date is July 17, 2001. As of
  September 30, 2000, the Company had no balance outstanding related to this
  facility.

  Item 2.   Management's Discussion and Analysis of Financial Condition and
            Results of Operations

     This report contains forward-looking statements that involve risks and
  uncertainties. These statements relate to our future plans, objectives,
  expectations and intentions, and the assumptions underlying or relating to any
  of these statements. These statements may be identified by the use of words
  such as "expect", "anticipate", "estimate", "believe", "intend" and "plan".
  Our actual results may differ materially from those discussed in these
  statements. These statements include, but are not limited to, our intent to
  pursue members through enterprise and consumer programs to increase membership
  revenues; our expectations regarding enterprise agreements providing a
  significant portion of membership revenues; our expectations regarding
  increasing our revenues from merchants, content partners and suppliers; our
  expectations regarding the costs of our member commerce programs; our
  expectations to improve pricing and eliminate acquisition discounts; our
  expectations regarding when the majority of Ford and Delta members will be
  enrolled; our expectations regarding the amount of future acquisition discount
  provisions; our intent to increase the offerings and revenues related to our
  member commerce program; our intent to establish member web site operations in
  foreign countries; our expectations regarding the cost of expanding our
  international operations; our expectation to expend significant resources on
  sales, marketing and general and administrative expenses; our expectations
  regarding our ability to fund our operations for the next twelve months; and
  our expectations regarding the costs of expanding our domestic operations and
  sales and marketing.

     The investment risks described in our recent Registration Statement on Form
  S-1 (File No. 333-34114) that was declared effective by the SEC on August 15,
  2000 continue to be risks for investors and potential investors in the
  Company, and such investors should carefully review the Risk Factors section
  in the Registration Statement before making an investment decision.

     The following discussion of our financial condition and results of
  operations should be read in conjunction with the financial statements and
  notes to the financial statements included elsewhere in this report.

     Overview

     Our business model addresses the increasing need for people to access the
  Internet, while offering merchants and other entities the opportunity to
  establish customer relationships with our members. We believe that long-term
  customer relationships are more valuable than the cost of providing customers
  with the tools they need to participate in the digital economy.

     We were incorporated in March 1999. We began offering our products and
  services on a limited basis in September 1999 and on a commercial basis in
  October 1999. Until September 1999, we had no revenues and our operating
  activities consisted primarily of developing relationships with vendors,
  suppliers and merchants.

     Our members enter into a three-year contract and, if qualified, pay as
  little as $24.95 per month plus a one-time shipping charge for a new brand-
  name computer system (including a monitor and software), unlimited Internet
  access, email services, a hosted Web site, customer support and in-home
  warranty. Alternatively, our members may choose a higher performance computer
  or laptop computer and pay a higher monthly payment. In addition, our members
  receive additional benefits through our member commerce program. Customers who
  do not wish to purchase a new computer system may use other computer systems
  to obtain Internet access and email capabilities on a monthly subscription
  basis as well as receive the discounts and special offers of our member
  commerce program through our PeoplePC Online program for $9.95 per month. This
  offering includes unlimited Internet access, participation in our member
  commerce program, email services and a hosted Web site.

     In addition to our offering to consumers, we offer programs through which
  enterprises may make our products and services available to their employees,
  customers and affiliated parties. We previously entered into agreements with
  Ford Motor Company and Delta Air Lines, Inc. to provide our products and
  services to the employees of Ford and Delta at negotiated rates. In their
  programs, Ford and Delta subsidize the purchase of our products and services
  by their employees. As Ford employees register to become PeoplePC members,
  Ford pays us for the entire 36-month membership. As Delta employees register
  to become PeoplePC members, Delta is obligated to pay us on a monthly basis
  over the 36-month membership period. We have agreed to provide Ford and Delta
  employees with several options to upgrade their computer systems for an
  additional charge payable by the employee. We recognize these revenues and
  associated costs over the three-year term of the relevant membership
  agreement. We also entered into a letter of understanding with the National
  Trades Union Congress in Singapore, or National Trades Union, to establish a
  co-sponsored program to offer our products and services on an un-subsidized
  basis to members of trade unions affiliated with the National Trades Union.
  The National Trades Union is a party to the letter of understanding because
  it will market our program to union members and arrange credit for union
  members who wish to pay for a membership over time. We will contribute
  $500,000 to the marketing budget for the program. We intend to sell our
  products and services directly to union members, on either a cash or
  installment purchase basis. The National Trades Union will not be a party to
  the sales transaction. If a union member wishes to pay for a membership over
  time in installments, the member will execute a credit sale agreement, which
  will then be sold on a non-recourse basis to a National Trades Union
  affiliate. In these transactions, the National Trades Union affiliate will
  assume all risk of customer payment obligation default. To date, we have not
  generated any revenues under this program.

     We have entered into similar agreements with the New York Times and Ogilvy
  & Mather to provide our products and services to their employees.

     We have also entered into channel marketing agreements with Visa USA and
  Highmark Blue Cross/Blue Shield through which Visa and Highmark will market
  and promote PeoplePC products and services to their respective customers.

     Membership revenues consist of revenues earned from the sale of membership
  bundles; the related charges for shipping the systems; and revenues earned
  from the sale of PeoplePC Online memberships which include all of our

                                      -9-
<PAGE>

  Internet related services but do not include a computer system. Although we
  receive revenue from the sale of membership bundles at the time of the
  member's enrollment, we defer the revenue and amortize it over the life of the
  membership contract due to the three-year nature of the relationship. We
  intend to continue to pursue members through enterprise agreements and our
  consumer programs to increase our membership revenues. We expect that
  memberships obtained through enterprise agreements will provide a significant
  portion of membership revenues in the future.

     Other revenues consist of revenues from the sale of upgraded monitors; the
  sale of printers; additional shipping revenues related to upgraded monitors
  and the sale of printers; and revenues from merchants, content partners and
  suppliers. We have not yet generated material revenues from merchants, content
  partners and suppliers. Other revenues are recorded in the period earned as
  these products, which are not requested by all members, are separately
  identifiable transactions and the related earnings process is completed at
  that time. We expect to increase our revenues from merchants, content partners
  and suppliers in the future.

     The cost of membership revenues consists primarily of the cost of the
  computer system (including software); the related cost to ship the system to
  new members; and the cost of providing Internet access. Consistent with our
  revenue recognition policy, these costs are deferred and amortized over the
  three-year membership term.

     The cost of other revenues consists of the cost of peripherals and the
  incremental cost of upgrades; the cost of shipping peripherals and upgrades;
  and other costs of revenues such as restocking fees. We anticipate that the
  cost of our member commerce program revenues will be minimal. The cost of
  other revenues is recorded in the period incurred.

     The up-front revenue received from our $24.95 per month entry level bundle
  and from the Ford and Delta enterprise programs is less than our estimated
  total current and expected future cost of providing products and performing
  under the applicable agreements. We have offered this introductory pricing to
  rapidly build our membership base and establish relationships with our
  members that we believe will provide the means for longer-term
  profitability. As we build our membership base, brand awareness and member
  loyalty, we expect to improve pricing and eliminate this acquisition
  discount. We have recorded a net provision of $19.1 million as of September
  30, 2000 that represents the amount, applicable to members added in each
  fiscal period, by which our total current and expected future costs exceed
  our membership revenues determined without regard to revenue from our member
  commerce program. The acquisition discounts under the Ford and Delta
  contracts are greater than those for members obtained through our consumer
  membership bundle offering. Acquisition discounts under other enterprise
  contracts may also be more than those produced under the consumer program.
  We expect the majority of Ford and Delta employees who elect to become
  members will be enrolled over the next two to three quarters. Accordingly,
  we expect to recognize approximately $50.0 million of future provisions as
  Ford, Delta and individual members enroll over that period. These future
  provisions may be even higher than estimated if demand is greater than
  expected. We may also recognize additional provisions due to the performance
  of additional enterprise agreements. Unless we are able to build our
  membership base, brand awareness and member loyalty, we may not be able to
  improve pricing or eliminate subsidizations to individual members or under
  enterprise agreements. The recordation of loss provisions in future periods
  will have a negative impact on operating results and stockholders' equity.

     Membership revenues earned also include revenues from members of PeoplePC
  Online, our Internet access only service, which consists of monthly
  subscription fees from our members. The cost of these revenues consists of the
  cost to provide Internet access. Online members pay subscription fees monthly
  and may cancel their membership at any time. Both revenues from the online
  program and the cost of those revenues are recorded as received or incurred.

     Revenues from our member commerce program are recognized in the period
  when a transaction occurs. Our contracts with merchants and other entities are
  typically structured so that we receive a percentage of sales revenues
  generated by our members' purchases from our merchants or a fixed fee when a
  member opens an account or executes his or her first transaction with a
  merchant. In some cases, we receive both a fixed fee for generating new
  customers and a percentage of subsequent sales revenues. In some cases, we
  also receive referral fees for directing our members to other companies' Web
  sites. Referral revenues are recognized as referrals are made to these Web
  sites. Amounts earned through these agreements were $.5 million for the nine
  months ended September 30, 2000. We intend to continue to expand the number
  and variety of our merchants participating in our member commerce program to
  provide our members with a broad range of product and service offerings. As
  our membership base grows, we believe we will be able to negotiate more member
  commerce programs for our members and increase the revenues we earn through
  our merchant offerings.

     We currently operate principally in the United States, the United Kingdom,
  France and Singapore. We have begun or expect shortly to begin to sell
  membership bundles through the Ford enterprise program to Ford employees in
  the United Kingdom, Canada, Mexico, Philippines and Venezuela. In at least
  some of these and other countries, we will be establishing localized
  membership website operations. We have established subsidiaries in Australia,
  British Virgin Islands, Canada, France, Germany, Mexico, the Netherlands,
  the United Kingdom and Singapore to support our international operations. We
  may establish additional subsidiaries in other countries, where operational,
  tax or other considerations provide reason to do so. We expect to

                                      -10-
<PAGE>

  spend approximately $40 million during 2000 to expand our international
  operations, which will be funded by the $50 million in proceeds received in
  establishing our European joint venture.

     The income or "benefits-in-kind" tax treatment of a program under which
  enterprises provide computers to their employees on a subsidized basis is
  uncertain with regard to both the enterprise and its employees and is a
  country-by-country issue depending on a number of factors, including the
  status of the employee with the company, the employee's country of
  residence, the size, if any, of the employee's co-payment and the particular
  structure of the program. Depending on the applicable tax rules, in order to
  qualify for tax-free treatment, a subsidized enterprise employee program
  would have to be structured in a manner that qualifies under the applicable
  rules for tax-free fringe benefits. To the extent a program is not tax-free,
  the entire amount of the subsidy could be considered taxable wages and be
  subject to applicable withholding rules. If we are unable to structure an
  enterprise program that is both tax-free in a particular country and
  desirable to an enterprise could hinder our ability to enter into new
  enterprise agreements, particularly outside the United States where we are
  unfamiliar with, and have not operated under, the local tax laws. To
  successfully structure an enterprise program in a particular country, we are
  required to analyze the local tax law, determine whether there are any
  adverse tax consequences of an enterprise program, and if so, identify a
  structure for a program that minimizes the taxes. This process is difficult
  and time consuming, and we cannot guarantee that we will find an acceptable
  structure in each country. For example, in Germany there are ongoing
  discussions with the taxing authorities to identify a satisfactory
  structure. In countries where the tax cost of an employee program is too
  high, local enterprises may be unwilling to enter into agreements with us.
  If employees are required to pay tax on the benefit, our acceptance rates
  may suffer, resulting in impractical economies of scale. As a result, we may
  encounter difficulties in entering agreements with enterprises located
  outside the United States and we may experience unexpected delays in
  structuring and implementing our programs with Ford and Delta in foreign
  jurisdictions.

     To date, all of our sales and all of our purchases from our suppliers have
  been made in U.S. dollars. As a result, changes in currency exchange rates do
  not generally have a direct effect on our financial position.

     In April 2000, we raised $49.7 million in gross proceeds from the sale of
  9,468,252 shares of Series C preferred stock. Ford Motor Company purchased
  4,765,650 shares of Series C preferred stock in connection with this financing
  and other investors purchased 4,702,602 shares. Ford also received the right
  to purchase 1,905,000 shares of common stock in a private placement effected
  at the closing of our initial public offering at the same price per share as
  our initial public offering. Ford exercised this right in full. Because Ford
  exercised this right, Ford also received a warrant to purchase 2,857,500
  shares of common stock, exercisable at the same price per share as our initial
  public offering, $10.00 per share, at any time for a period of 200 days
  following the closing date of our initial public offering, which was August
  21, 2000. In relation to Ford, the value of the right, the warrant and the
  excess of the value of the common stock into which the Series C preferred
  stock is exercisable over the price paid for the Series C preferred stock is
  $24.5 million and has been charged to sales and marketing expense in the
  second quarter of 2000. These rights and equity have been granted to Ford in
  order to gain access to Ford's employees as potential members and to encourage
  Ford to purchase membership packages. As Ford has no future performance
  requirements and no minimum purchase commitments with respect to the
  membership packages, the charge has been expensed when incurred. The Series
  C preferred stock converted into common stock on a 1-to-1 basis upon the
  closing of our offering. In the nine months ended September 30, 2000, we
  recorded a dividend of $18.2 million as a result of a beneficial conversion
  feature of preferred stock issued to the other investors. This dividend has
  been calculated as the difference between the price paid by the investors
  and the offering price of $10.00 per share in our initial public offering.

     Results of Operations

     Three months ended September 30, 2000

     Revenues

     Membership Revenues Earned.   Membership revenues earned include membership
  revenues, related shipping revenues, revenues from PeoplePC Online
  memberships, and recognition of membership revenues previously deferred. For
  the three

                                      -11-
<PAGE>

  months ended September 30, 2000, gross membership revenues were $124.4
  million. Because we recognize membership revenues over the 36-month term of
  the membership agreement, $123.9 million of membership revenues was deferred.
  For the three months ended September 30, 2000, membership revenues include the
  recognition of $10.3 million in revenues previously deferred.

     Other Revenues.  Other revenues consist of sales of peripherals and the
  incremental cost of upgrades, the related shipping revenues and revenues from
  merchants, content partners and suppliers. Other revenues for the three
  months ended September 30, 2000 were $14.5 million, $14 million of which
  related to the sale of upgrades and peripherals.

     Cost of Revenues

     Cost of Membership Revenues Earned.  Cost of membership revenues earned
  consists primarily of the cost of the basic system hardware and software,
  fulfillment and shipping costs and our cost of providing members with Internet
  connectivity. For the three months ended September 30, 2000, cost of gross
  membership revenue was $125.3 million. Because we recognize system hardware
  and software cost of revenues over the 36-month term of the membership
  agreement, $122.8 million of cost of membership revenues was deferred and $9.5
  million of costs previously deferred was recognized. Cost of revenues for the
  three months ended September 30, 2000 also includes a net provision of $14.6
  million for the amount by which our estimated current and future cost of
  memberships exceeds the related membership revenue.

     Cost of Other Revenues.  The cost of other revenues for the three months
  ended September 30, 2000 was $13.4 million. Cost of other revenues primarily
  consists of the cost of peripherals, the incremental cost of upgrades, and
  the related shipping expense. Cost of other revenues also includes
  incidental costs incurred such as restocking fees. These costs are not
  significant for the three months ended September 30, 2000.

     Operating Expenses

     Sales and Marketing.  Sales and marketing expenses include fees paid to
  third-party advertising sales agents, sales support functions, travel and
  related expenses and related salaries and benefits. Sales and marketing costs
  associated with increasing and servicing our membership base are expensed in
  the period incurred. Sales and marketing expenses were $19.2 million for the
  three months ended September 30, 2000, $17.7 million of which was related to
  fees paid for third-party advertising In an effort to increase our revenues,
  membership base, brand awareness and overall customer experience, we expect to
  continue to expend significant resources on sales and marketing in the future.

     General and Administrative.  General and administrative expenses include
  payroll and related expenses for management and administrative personnel,
  expenses related to maintaining member relations, facilities costs,
  professional service fees, travel and other general corporate expenses. We
  previously included expenses related to maintaining member relations in sales
  and market expense. These amounts have been reclassified as general and
  administrative expense consistent with industry practice and total $6.8
  million for the three months ended September 30, 2000. General and
  administrative expenses were $20.5 million for the three months ended
  September 30, 2000 and included approximately $1 million of facilities expense
  and $8.9 million paid to outside consultants, contractors and other
  professionals for services rendered. We anticipate that general and
  administrative expenses will increase in absolute dollars due to increased
  expenses associated with the addition of personnel and additional professional
  fees, including costs associated with being a public company.

     Net Interest, Other Income and Minority Share

     Net interest, other income and minority share consists of interest income
  from cash equivalents and short-term investments of $0.9 million and an
  adjustment for the amount of net loss in the European subsidiary
  attributable to the minority investor in the amount of $1.0 million for the
  three months ended September 30, 2000.

     Income Taxes

     As a result of our operating losses and the uncertainties related to our
  ability to recognize a benefit from our deferred tax assets, we have not
  recorded a provision for income tax for the three months ended September 30,
  2000. We have provided a full valuation allowance on our deferred tax assets.

     Net Loss

     Net loss for the three months ended September 30, 2000 was $64.2 million,
  of which operating expenses were $39.6 million, including a non-cash item in
  the amount of $11.9 million attributable to the amortization of deferred
  stock-based compensation. Net loss also included non-cash provision for
  acquisition discounts of $14.6 million.

                                      -12-
<PAGE>

     Nine months ended September 30, 2000

     Revenues

     Membership Revenues Earned.  Membership revenues earned include revenues
  derived from the sale of membership bundles, related shipping revenues,
  revenues from PeoplePC Online memberships, and recognition of membership
  revenues previously deferred. For the nine months ended September 30, 2000,
  gross membership revenues were $200.2 million. Because we recognize membership
  revenues over the 36-month term of the membership agreement, $194.9 million of
  membership revenues was deferred. For the nine months ended September 30,
  2000, membership revenues include the recognition of $18.6 million in revenues
  previously deferred.

     Other Revenues.  Other revenues consist of sales of peripherals and the
  incremental cost of upgrades, the related shipping revenues and revenues
  from merchants, content partners and suppliers. Other revenues for the nine
  months ended September 30, 2000 were $20.3 million, of which $19.8 million
  was related to the sale of upgrades and peripherals.

     Cost of Revenues

     Cost of Membership Revenues Earned.  Cost of membership revenues earned
  consists primarily of the cost of the basic system hardware and software and
  our cost of providing members with Internet connectivity. For the nine months
  ended September 30, 2000, cost of gross membership revenue was $196.9 million.
  Because we recognize system hardware and software cost of revenues over the
  36-month term of the membership agreement, $187.5 million of cost of
  membership revenues was deferred and $16.9 million of costs previously
  deferred was recognized. Cost of revenues for the nine months ended September
  30, 2000 also includes a provision of $19.1 million for the amount by which
  our estimated current and future cost of memberships exceeds the related
  membership revenue.

     Cost of Other Revenues.  The cost of other revenues for the nine months
  ended September 30, 2000 was $19.2 million. Cost of other revenues primarily
  consists of the cost of peripherals, the incremental cost of upgrades, and
  the related shipping expense. Cost of other revenues also includes
  incidental costs incurred such as restocking fees totaling $1.2 million for
  the nine months ended September 30, 2000.

     Operating Expenses

     Sales and Marketing.  Sales and marketing expenses include fees paid to
  third-party advertising sales agents, sales support functions, travel and
  related expenses and related salaries and benefits. Sales and marketing costs
  associated with increasing and servicing our membership base are expensed in
  the period incurred. Sales and marketing expenses were $78.1 million for the
  nine months ended September 30, 2000, $49.6 million of which was related to
  fees paid for third-party advertising and $26.0 million of which was related
  to a charge taken in connection with the warrants and rights granted to Ford
  and Delta, as well as with the beneficial conversion feature related to the
  issuance of preferred stock to Ford. In an effort to increase our revenues,
  membership base, brand awareness and overall customer experience, we expect to
  continue to expend significant resources on sales and marketing in the future.

     General and Administrative.  General and administrative expenses include
  payroll and related expenses for management and administrative personnel,
  expenses related to maintaining member relations,  facilities costs,
  professional service fees, travel and other general corporate expenses. We
  previously included expenses related to maintaining member relations in sales
  and marketing expense. These amounts have been reclassified as general and
  administrative expense consistent with industry practice and total $16.0
  million for the nine months ended September 30, 2000. General and
  administrative expenses were $43.6 million for the nine months ended September
  30, 2000 and included approximately $1.9 million of facilities expense and
  $20.4 million paid to outside consultants, contractors and other professionals
  for services rendered. We anticipate that general and administrative expenses
  will increase in absolute dollars due to increased expenses associated with
  the addition of personnel and additional professional fees, including costs
  associated with being a public company.

     Net Interest, Other Income and Minority Share

     Net interest, other income and minority share consists of income from cash
  equivalents and short-term investments of $2.3 million and an adjustment for
  the amount of net loss in the European subsidiary attributable to the minority
  investor in the amount of $1.0 million for the nine months ended September
  30, 2000.

                                      -13-
<PAGE>

     Income Taxes

     As a result of our operating losses and the uncertainties related to our
  ability to recognize a benefit from our deferred tax assets, we have not
  recorded a provision for income tax for the nine months ended September 30,
  2000. We have provided a full valuation allowance on our deferred tax assets.

     Net Loss

     Net loss for the nine months ended September 30, 2000 was $189.4 million,
  of which operating expenses were $154.0 million, including non-cash charges
  in the amount of $32.3 million in amortization of deferred stock-based
  compensation and $26.0 million related to the warrants and rights granted to
  Ford and Delta. Net loss also includes a non-cash provision for acquisition
  discounts of $19.1 million and a non-cash dividend related to the beneficial
  conversion feature of preferred stock of $18.2 million.

     Liquidity and Capital Resources

     To date, we have financed our operations by the issuance of preferred stock
  and our initial public offering of common stock on August 21, 2000. As of
  September 30, 2000, our sources of liquidity consisted of $118.9 million in
  cash and cash equivalents, including $30.7 million in restricted cash. Our net
  accounts receivable balance as of September 30, 2000 was $58.9 million.

     Net cash used in operating activities was $129.5 million for the nine
  months ended September 30, 2000. Cash provided by operating activities for
  this period consisted primarily of membership fees. Cash used in operating
  activities for these periods consisted primarily of advertising expenses,
  costs of our computer systems and peripherals, payroll and other employee-
  related expenses, and an increase in accounts receivable net of allowance
  for doubtful accounts of approximately $58.9 million.

     Net cash used in investing activities was $19.1 million for the nine months
  ended September 30, 2000. Net cash used in investing activities for this
  period consisted primarily of an increase of $14.9 million in accounts
  collateralizing letter of credit agreements (primarily securing future
  inventory purchases) and $4.1 million for the purchase of property and
  equipment.

     Net cash provided by financing activities was $200.7 million for the
  period from inception to September 30, 2000, and consisted of the proceeds
  from our initial public offering, the issuance of a note and preferred
  stock, and from an investment in our European subsidiary. In May 1999, we
  sold 24,000,000 shares of our Series A preferred stock at $0.125 per share
  for an aggregate purchase price of $3.0 million to venture capital
  investors. In October 1999, we sold 29,816,514 shares of our Series B
  preferred stock at $2.18 per share for an aggregate purchase price of $65.0
  million to venture capital investors. In April 2000, we sold 9,468,252
  shares of Series C preferred stock at a price of $5.246 per share for an
  aggregate purchase price of $49.7 million to Ford and venture capital
  investors. On August 21, 2000, we consummated our initial public offering
  whereby we sold an aggregate of 8,500,00 shares of our common stock for an
  aggregate purchase price of $85,000,000 before discounts, commissions and
  expenses associated with the initial public offering. Contemporaneously with
  our initial public offering on August 21, 2000, Ford Motor Company exercised
  its right to purchase 1,905,000 shares of common stock in a private
  placement effected at the closing of our initial public offering at $10.00
  per share for an aggregate purchase price of $19,050,000. Because Ford
  exercised the preceding right, Ford also received a warrant to purchase
  2,857,500 shares of common stock, exercisable at $10.00 per share at any
  time for a period of 200 days following the date of our initial public
  offering on August 21, 2000. Each share of preferred stock converted into
  common stock on a 1-to-1 basis upon the closing of our initial public
  offering. In August and September 2000, @Viso purchased a minority interest
  in our European subsidiary for $50 million.

     We currently rely on MBNA America Bank, N.A. to provide a loan with 36
  monthly payments to qualified members who wish to finance their membership
  fees. The agreement is structured as an unsecured loan directly between MBNA
  and the member. We receive the present value of the membership fees from MBNA
  at the inception of the membership, less a percentage retained by MBNA which
  has the effect of increasing the interest rate earned by MBNA on the loans to
  our members. We then have no further obligation to MBNA. We do not bear any
  credit risk in the event a member defaults on its payments to MBNA. We are not
  involved in the approval, funding or collection of current or past due
  payments on the loan. Members pay us directly for upgraded monitors, printers
  and all shipping charges using a credit card, which is billed by us.
  Approximately 90% of our individual members have obtained financing of their
  memberships through MBNA through September 30, 2000. These members make their
  monthly payments directly to MBNA. MBNA allows members to prepay their loan in
  part or in whole at any time without penalty.

     Except in cases whereby we contract directly with equipment manufacturers,
  we rely on Ingram Micro to distribute computer systems and peripherals from
  our suppliers to our customers. Our computer suppliers ship their products
  directly to Ingram Micro's distribution centers around the country. When a
  customer application is approved, products are picked from inventory, packed
  and shipped to our customers from the distribution center closest to the
  shipping address. Ingram Micro purchases inventory on our behalf based on
  sales projections made by us. We are obligated to purchase inventory held by
  Ingram Micro purchased on our behalf. Our agreement with Ingram Micro expires
  on December 31,
                                      -14-
<PAGE>

  2000, and may be renewed for one-year terms by mutual written consent of the
  parties. At September 30, 2000, we had approximately $40 million in
  noncancelable purchase commitments with Ingram Micro, including
  approximately 29,000 computers held by Ingram Micro which do not conform to
  specifications as ordered by us, with respect to which we recorded a
  contingent liability of $15.6 million. We have reached an agreement with
  Ingram Micro to liquidate the non-conforming computers, following which we
  will bear a portion of the losses not to exceed 50%. While the amount of the
  aggregate loss following liquidation cannot be determined at this time, we
  believe that our $15.6 million provision will be sufficient to cover our
  share of the losses.

     In June 2000, we formed a European subsidiary, PeoplePC N.V., a Netherlands
  corporation (PPC Europe). We and PPC Europe entered into financing and related
  agreements with @viso Limited, a partnership of SOFTBANK Corp. and Vivendi
  S.A., a French corporation. In the financing, PPC Europe received $50.0
  million from @viso payable over a two month period beginning on the closing
  date in exchange for 35% of PPC Europe's outstanding capital stock in the form
  of convertible preferred stock, and we retained 65% of PPC Europe's
  outstanding capital stock in the form of common stock. We received our 65%
  interest in exchange for our grant of an exclusive license to use and exploit
  our technology and brand in Europe. We have retained the rights to our
  technology and brand in the rest of the world. The financing closed in July
  2000. We expect this $50.0 million to be used to expand our international
  operations. In addition, PPC Europe will issue a warrant to acquire
  convertible preferred stock to SOFTBANK Capital Partners LP representing 5% of
  PPC Europe's shares outstanding as of the closing of the financing, and PPC
  Europe intends to reserve approximately 15% of its shares outstanding as of
  the closing of the financing for issuance under employee stock benefit plans.
  PPC Europe can compel the exercise of the SOFTBANK warrant not sooner than six
  months after the closing. PPC Europe has the exclusive right and obligation to
  fulfill, market and sell PeoplePC products to and receive buyer's club
  revenues from European members including the European employees of enterprises
  such as Ford and Delta. We have comparable rights worldwide, including with
  respect to any enterprise agreement entered into by PPC Europe with a European
  multinational operation. PPC Europe will pay us, and we will pay PPC Europe
  $100 for each member acquired in our respective territories as a result of the
  other party entering into an enterprise agreement. @viso has the right to
  designate two board members for PeoplePC Europe and we have the right to
  designate the chief executive officer and the remaining five board members
  (including the chief executive officer who serves on the board). We also
  control the daily operating decisions of PeoplePC Europe. However, one of the
  @viso designated board members must vote to approve transactions outside the
  ordinary course of business.

     In July 2000, we entered into a credit agreement with The Chase Manhattan
  Bank providing for a $50 million revolving credit facility maturing in July
  2001. Amounts borrowed under the credit agreement will bear interest at
  variable rates, including as one of the rate options LIBOR plus 60 basis
  points. We are required to pay fees to the lender for the loan commitment
  and for underwriting and structuring. Our obligations under the credit
  agreement will be secured by all accounts receivable under our agreement
  with Ford. The availability of loans under the credit agreement is subject
  to usual and customary closing conditions, as well as to a borrowing base
  based on a percentage of invoiced receivables under the Ford agreement
  meeting specified eligibility requirements. The credit agreement also
  includes normal and customary covenants for transactions of this type,
  including maintenance of corporate existence, properties and rights;
  performance of obligations; various notice and information provisions;
  compliance with laws and certain contracts; limitation on indebtedness;
  limitation on liens; limitation on mergers and other fundamental changes;
  limitation on investments and acquisitions; limitation on transactions with
  affiliates; and limitations on restrictive agreements. As of September 30,
  2000, there was no balance outstanding in regard to this credit facility.

     In addition to the proceeds from our initial public offering, we may need
  to raise additional capital to fund our future operations because we expect to
  incur operating and net losses until at least 2003. We currently anticipate
  that the combination of our available funds as of September 30, 2000, our
  credit facility, the collection of short term accounts receivable and other
  available sources of borrowed funds, will be sufficient to meet our
  anticipated needs for the next twelve months.

     If we need to raise additional funds through public or private financing,
  we cannot be certain that additional financing will be available or that, if
  available, it will be available on terms acceptable to us. Additional
  financing may result to substantial and immediate dilution to existing
  stockholders. If adequate funds are not available to satisfy either short- or
  long-term capital requirements, we may be required to curtail our operations
  significantly or to seek funds through arrangements with third parties that
  may require us to relinquish material rights to certain of our services,
  technologies or potential markets.

     The non-cancellable purchase commitments at September 30, 2000 included
  approximately $40 million to Ingram Micro and approximately $20 million to IBM
  pursuant to a direct shipment program entered into with IBM. In the ordinary
  course of our business we make commitments to purchase computers in order to
  make timely deliveries to new members as they sign up for our membership
  package. However, we normally pay for the computers no sooner than two days
  after the time of shipment to the member, although we are required to
  maintain a deposit at Ingram Micro, adjusted weekly, equal to approximately
  25% of outstanding purchase orders. On September 30, 2000, this deposit
  amounted to approximately $14 million. Under our typical consumer financing
  arrangements, for instance the arrangement with MBNA, we receive promptly a
  lump sum payment from MBNA that completely offsets the cost of the computer
  and other equipment being purchased. This payment from MBNA is net of a
  percentage retained by MBNA which has the effect of increasing the interest
  rate earned by MBNA on the loans to our members. We receive this payment
  from MBNA before we are obligated to pay our computer system suppliers.
  Therefore, these arrangements enable us to use a relatively small amount of
  capital because the number of computers purchased and not paid for or
  financed at any given time will be only a fraction of the total purchase
  commitment which will typically extend over several months. The Ford and Delta
  programs depart from our typical practice as described above. In the Ford
  program we collect the majority of the amount for which the employee is
  responsible similarly to the process described above. Ford remits the portion
  for which it pays semi-monthly. The Delta program involves monthly payments to
  us rather than a lump sum payment. We are presently negotiating with lenders
  to arrange financing for the Delta program.

                                      -15-
<PAGE>

     Other than approximately $60 million in non-cancelable purchase commitments
  for computers at September 30, 2000, we do not have significant capital
  commitments. During the year ended December 31, 2000, we intend to spend
  approximately $40 million to expand our international operations,
  approximately $20 million to expand our domestic operations, approximately $25
  million for domestic sales and marketing, and approximately $15 million to
  meet our obligation with respect to the approximately 29,000 non-conforming
  computers currently held by Ingram Micro, and approximately $5 million to
  purchase computers from Ingram Micro. In addition, we expect to use the
  proceeds of our European joint venture financing for international operations.

     Effects of Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
  "Accounting for Derivative Instruments and Hedging Activities," which
  establishes accounting and reporting standards for derivative instruments and
  hedging activities. SFAS No. 133 requires that an entity recognize all
  derivatives as either assets or liabilities in the statement of financial
  position and measure those instruments at fair value. We have not engaged in
  derivative and hedging activities to date. We are currently evaluating the
  impact of this pronouncement and will adopt SFAS No. 133 in 2001.

     In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
  Recognition in Financial Statements." SAB 101 summarizes the SEC's views in
  applying generally accepted accounting principles to revenue recognition in
  financial statements. We are in compliance with this pronouncement.

     In March 2000, the FASB issued Interpretation No. 44 "Accounting for
  certain transactions involving stock compensation, an interpretation of APB
  Opinion No. 25" (FIN 44). FIN 44 establishes guidance for the accounting of
  stock option grants or modifications to existing stock option awards and is
  effective for option grants made after June 30, 2000. FIN 44 also establishes
  guidance for the repricing of stock options and determining whether a grantee
  is an employee, for which the guidance is effective after December 15, 1998,
  and for modifying a fixed option to add a reload feature, for which the
  guidance is effective after January 12, 2000. The adoption of certain of the
  provisions of FIN 44 prior to June 30, 2000 did not have a material effect on
  our financial statements. We do not expect that the adoption of the remaining
  provisions will have a material effect on our financial statements.

  Item 3.   Qualitative and Quantitative Disclosure about Market Risk

     We are exposed to fluctuations in interest rates and market values of our
  investments. Our exposure to fluctuations in interest rates and market values
  of our investments relates primarily to our short-term investment portfolio,
  which is included in cash and cash equivalents and short-term investments. We
  have not used derivative financial instruments in our investment portfolio. We
  invest our excess cash in highly liquid commercial paper and U.S. Government
  debt securities with maturities of less than one year, and, by policy, we
  limit the amount of credit exposure to any one issuer. Due to the short-term
  nature of our investments, the impact of interest rate changes would not
  generally be expected to have a significant impact on the value of these
  investments. The effect of interest rate and investment risk on us has not
  been significant.

     Investments in both fixed rate and floating rate interest earning
  instruments carry a degree of interest rate risk. Fixed rate securities may
  have their fair market value adversely impacted due to a rise in interest
  rates, while floating rate securities may produce less income than expected if
  interest rates fall.

                                      -16-
<PAGE>

   We have limited our investments to short-term, highly rated, fixed income
facilities such as repurchase agreements collateralized by government
securities and A-1/P-1 commercial paper. We intend to maintain our current
investment policy, which is designed to preserve principal while at the same
time maximizing the after-tax income we receive from our investments without
significantly increasing risk. Some of the securities that we may invest in
may be subject to market risk. This means that a change in prevailing interest
rates may cause the principal amount of the investment to fluctuate. For
example, if we hold a security that was issued with a fixed interest rate at
the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. To minimize this
risk in the future, we intend to maintain our portfolio of cash equivalents
and short-term investments in a variety of securities, including commercial
paper, money market funds, government and non-government debt securities.

   We currently have no floating rate indebtedness, hold no derivative
instruments and do not earn significant foreign sourced income. Accordingly,
changes in interest rates or currency exchange rates do not generally have a
direct effect on our financial position. In addition, we have primarily
operated in the United States and all purchases and sales to date have been
made in U.S. dollars. Foreign currency exchange rates, however, may affect the
cost of our personal computers, printers and monitors purchased from our
foreign suppliers, thereby indirectly affecting consumer demand for our
products and our net revenues. In addition, to the extent that changes in
interest rates and currency exchange rates affect general economic conditions,
we would also be affected by such changes.

Risk Factors That May Affect Future Results

   The investment risks described in our recent Registration Statement on Form
S-1 (File No. 333-34114) that was declared effective by the SEC on August 15,
2000 continue to be risks for investors and potential investors in the
Company, and such investors should carefully review the Risk Factors section
in the Registration Statement before making an investment decision.

                                      -17-
<PAGE>

                                    PART II

Item 1.   Legal Proceedings

          We may from time to time become a party to various legal proceedings
          arising in the ordinary course of our business. We are not currently
          involved in any material legal proceedings.

Item 2.   Changes in Securities

          Recent Sales of Unregistered Securities

          In the three months ended September 30, 2000, PeoplePC issued options
          to purchase 2,629,625 shares of common at exercise prices ranging from
          $6.19 to $12.00 per share to 96 employees and contractors. These
          shares were exempt from registration under Rule 701 and/or section
          4(2) of the Securities Act.

          Contemporaneously with our initial public offering on August 21, 2000,
          Ford Motor Company exercised its right to purchase 1,905,000 shares of
          common stock in a private placement effected at the closing of our
          initial public offering at $10.00 per share for an aggregate purchase
          price of $19,050,000.  Because  Ford exercised the preceding right,
          Ford also received a warrant to purchase 2,857,500 shares of common
          stock, exercisable at $10.00 per share at any time for a period of 200
          days following the date of our initial public offering on August 21,
          2000.  The securities issued to Ford were exempt from registration
          under Rule 506 of the Securities Act because the sale was to an
          accredited investor, as defined in Rule 501 of the Securities Act.

          Use of Proceeds from Sales of Registered Securities

          On August 21, 2000, the Company completed an initial public offering
          of its common stock, $.0001 par value. The managing underwriters in
          the offering were Chase Securities Inc., FleetBoston Robertson
          Stephens Inc., J.P. Morgan Securities Inc. and Prudential Securities
          Incorporated. The shares of common stock sold in the offering were
          registered under the Securities Act of 1933, as amended, on a
          Registration Statement on Form S-1 (File No. 333-34114) that was
          declared effective by the SEC on August 16, 2000.

          In addition, upon completion of the initial public offering, all
          outstanding shares of preferred stock were automatically converted
          into 63,284,766 shares of PeoplePC, Inc. common stock.

          The offering commenced on August 16, 1999 after all 8,500,000 shares
          of common stock registered under the Registration Statement were sold
          at a price of $10.00 per share. The aggregate price of the offering
          amount registered was $85,000,000. In connection with the offering, we
          paid an aggregate of $5,950,000 in underwriting discounts and
          commissions to the underwriters. In addition, the following table sets
          forth the expenses incurred in connection with the offering, other
          than underwriting discounts and commissions.


          SEC Registration fee                          $   48,880
          NASD filing fee                                   19,015
          Nasdaq National Market listing fee                95,000
          Blue sky qualification fees and expenses          20,000

                                      -18-
<PAGE>

          Printing and engraving expenses                  250,000
          Legal fees and expenses                          600,000
          Accounting fees and expenses                     400,000
          Transfer agent and registrar fees                 25,000
          Miscellaneous expenses                            92,105
          Total                                         $1,550,000


          After deducting the underwriting discounts and commissions and the
          estimated expenses related to the offering as described above, we
          received net proceeds from the offering of approximately $77,500,000.

          As of September 30, 2000, we have used the net proceeds from our
          initial public offering of common stock for the following purposes:

          .   approximately $5 million to expand our international operations
              including infrastructure and sales and marketing expenses;

          .   approximately $20 million to expand our domestic operations by
              hiring additional employees, leasing additional office space and
              expanding our infrastructure;

          .   approximately $19 million for domestic sales and marketing;

          The remaining proceeds will be used for general corporate purposes,
          including working capital, expansion of our sales and marketing
          capabilities, and acquisitions of, or investments in, businesses,
          products and technologies that are complementary to our business. None
          of our net proceeds of the offering were paid directly or indirectly
          to any director, officer, general partner of the Company or their
          associates, persons owning 10% or more of any class of our equity
          securities, or any of our affiliates.

Item 3.   Default Upon Senior Securities
          None

Item 4.   Submission of Matters to a Vote of Security Holders
          None

Item 5.   Other Information
          None

Item 6.   Exhibits

          10.1  Addendum to Master Services and Supply Agreement, dated
                September 29, 2000 between PeoplePC and Ford Motor Company.

          27.1  Financial data schedule

          Reports on Form 8-K
          None

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<PAGE>

                                   SIGNATURE

  Pursuant to the requirements of the Securities Act of 1934, this report has
been signed and thereunto duly authorized, in the City of San Francisco, State
of California, on November 14, 2000.

                                    PEOPLEPC, INC

                                    By:  /s/      NICK GROUF
                                         -------------------------------------
                                                  Nick Grouf
                                         President and Chief Executive Officer


                                    By:  /s/      JOHN ADAMS
                                         -------------------------------------
                                                  John Adams
                                              Chief Financial Officer

                                      -20-